In a small, closed economy national income (GDP) is $750.00 million for the current month. Individuals have spent $300.00 million on the consumption of goods and services. They have paid a total of $250.00 million in taxes and the government has spent $400.00 million on goods and services this month. Use this information and the national income identity to answer the following questions. How much does the economy spend on investment? What is national saving in the economy? How are investment and national saving related in an economy like this?

Question

Business

Nathaniel Long

9 March, 01:05

In a small, closed economy national income (GDP) is $750.00 million for the current month. Individuals have spent $300.00 million on the consumption of goods and services. They have paid a total of $250.00 million in taxes and the government has spent $400.00 million on goods and services this month. Use this information and the national income identity to answer the following questions. How much does the economy spend on investment? What is national saving in the economy? How are investment and national saving related in an economy like this?

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Cadence · Answer 1

Investment is $50 million as shown below.

The national savings is - $150m as government spent more than it received in taxes.

The national savings and the investment moving in different directions shows that the economy is running a deficit budget

Explanation:

The formula for computing GDP is given as:

GDP = C + I + G + (Ex - Im)

Where C=Consumption

I=investment

G=Government expenditure

Ex=Export

Im=Import

In this case, neither export nor import is applicable

The formula becomes:

GDP=G+I+C

Rewritten I=GDP-C-G

I=750-300-400

I=$50m

National savings is the difference between what government in taxes and government exenditure.

National savings = T-G

National savings=250-400

National savings=-150m